Enhancing diversity in the legal profession is a longstanding and important priority. Yet looking at the numbers, it's clear we still have a long way to go.
Last year the National Association for Law Placement estimated that only 18 percent of partners at the nation's large law firms are women and only 5.4 percent are minorities. Despite plenty of good intentions and broad activities, there's still a lot of room for progress.
In July, Microsoft's legal department decided to take some new steps. We announced changes to our payment terms for 17 leading law firms that handle $150 million of our work annually. We're making the final 2 percent of each firm's legal fees payable as a bonus, contingent on whether they make defined, quantitative progress in diversity results. This can involve either an increase in diverse attorney representation on our matters or an increase in diversity among the firm's U.S. attorneys as a whole.
We launched this program after a lot of thought and discussion both with these firms and within our department. We were inspired by many other individuals and groups who are taking important strides to advance diversity. We concluded that it was important for us to add to their initiatives by becoming more proactive ourselves.
We acted from the conviction that diversity in our legal teams is a business necessity. We cannot be effective if we cannot understand and appreciate the interests of the incredibly diverse individuals who make up our stakeholder groups. This is important both for our own department and for the law firms on which we rely.
We also acted with the hope that new steps might accelerate progress.
We believe in applying valuable lessons from the world of business. For one thing, economics really does matter. When it comes to advancing diversity, our profession is not yet embracing the "pay for performance" approach that successfully guides most activity in our economy.
It makes sense to try.
We need accountability that works. The ultimate form of accountability in business is the risk that one will lose his or her job or client. But there's also the opportunity to couple this prospect with a more granular approach that includes important but incremental risks and rewards.
We concluded that if we were going to ask those who work for us to commit to something new, we needed to make a similar commitment ourselves. We therefore decided that 5 percent of the annual bonus of our most senior inside attorneys--including me--would depend on the level of success by our law firms in improving diversity and earning their bonus from us. If they succeed, so will we. If they fail, we fail.
We've also launched new activities to work in closer partnerships with our leading law firms. These range from joint diversity pipeline development and recruiting initiatives to an advocacy academy to introduce diverse litigators at these firms to our litigation group. We're backing this up with a three-fold increase in our budget for diversity projects, now totaling $750,000 per year.
Finally, we believe that in business the best form of learning often comes from doing. This is not to underestimate the importance of being thoughtful in advance. But in most circumstances one can learn more quickly by experimenting with new initiatives than by debating their merits.
As those who sponsored the Call to Action and many others have demonstrated, this is an important time for all of us to try new ideas and take new steps. At Microsoft we know that we don't have all the answers. But if across corporate America all of us become more proactive and work in closer partnerships with law firms and each other, we'll all become faster learners.
And from that, more impressive results will follow.